As I write this post, Ukraine is under Russian fire. Multiple cities have been raised to the ground, thousands lie dead, and the only small consolation are the amazing speeches by President Zelensky. The attack on Ukraine is terrible at so many different levels. This is Dresden on steroids.
Nevertheless, I’d like to look forward. Once Ukraine has won this war (which she will), there must be a massive amount of rebuilding and reconstruction. Much civil infrastructure has already been damaged or destroyed. This is about more than roads and bridges. Essential organisations such as the judiciary, the land register, and the tax authorities may also be at risk. This would be highly problematic; the ability to e.g. levy tax is essential (both practically and symbolically) for a sovereign state. Is there anything that we – tax experts, governments, the EU, a random American billionaire… – could do to assist the State Tax Service of Ukraine?
How might Ukraine be assisted from a tax perspective?
Now, this isn’t a highly original idea: if it can occur to a tax blogger in Holland, Ukrainian tax specialists will certainly be on the case. Nevertheless, I’d like to offer a few focal points in the context of fiscal rebuilding. We don’t have to wait until the end of the war – let’s start thinking about approaches now.
- Support Ukrainian tax authorities
Firstly, the Ukrainian State Tax Service of Ukraine may require immediate support, e.g. with practical issues such as IT systems or staffing. Or perhaps in relation to the Ukranian postal system (for sending tax assessments). Can we help with this? In the international context, there may be scope to help with the cross-border collection of tax on behalf of Ukraine or the sharing of information, depending on the wishes of Ukraine.
- Offer (temporary) changes to bilateral tax treaties with Ukraine
At present, Ukraine has 74 such treaties, including treaties with the Netherlands, Luxembourg and Ireland. Under certain conditions, these tax treaties restrict Ukraine’s right to levy tax on dividend, interest and royalties. Of course, this in itself need not be problematic. Nevertheless, it is conceivable that Ukraine would, in the post-war period, benefit from a (temporary) renegotiation or suspension of tax treaties to improve Ukraine’s position in this regard, maybe even considering the possibilities of a (temporary) tax sparing credit as a way to boost investment into Ukraine.
- Tax Capacity Building
Rebuilding Ukraine will almost certainly include a fiscal component. In the area of international tax, it is important that the Ukrainian authorities (for example the people conducting international tax negotiations) have sufficient knowledge, information and access to professional, academic and political networks to ensure that any agreements entered are optimal from the Ukrainian perspective. Experiences in other parts of the (developing) world show that tax treaties and bilateral investment treaties (BITs) need to be carefully considered. This applies in particular to the fiscal paradigm which is being rolled-out by the OECD, e.g., in relation to BEPS 2.0. Ukraine is currently a member of the Inclusive Framework, but that doesn’t mean that the framework’s fruit – including Pillar II! – are necessarily ideal for Ukraine.
- Raise public awareness – especially outside of Ukraine
My last point pertains to the issue of public awareness. For reasons that I have yet to fathom, the technical elements of tax treaties and BITs are always never at the forefront of public debate. This needs to change: we need to be building pressure on our governments to include international tax as part of rebuilding, especially where this involves allocating additional taxation rights to Ukraine. Politicians generally need a bit of encouragement when it comes to deals that are “worse” from the perspective of their own national treasury.